Contractors’ Claims Denied For Failure To Strictly Comply With Contract Notice Provisions

ON TWO RECENT APPEALS THE APPELLATE DIVISION UNANIMOUSLY AFFIRMS DISMISSAL OF CONTRACTORS CLAIMS FOR FAILURE TO STRICTLY ADHERE TO NOTICE OF CLAIM PROVISIONS CONTAINED IN NEW YORK CITY CONTRACTS

All too often contractors performing work for municipalities, such as the City of New York, overlook the importance of strictly complying with contractual notice provisions related to extra work or damages arising from delays on a construction project.  Not only can these notice provisions be burdensome to a contractor, but the fear of engendering an adversarial project atmosphere often time discourages the contractor from strictly adhering to such notice provisions.

However, in a tandem of recent decisions the Appellate Division for the First Department highlights the importance of strictly complying with the contractual notice provisions contained in construction contracts with municipalities such as the City of New York.  In its May 2, 2013 decision in Schiavone Construction Co., Inc. v. The City of New York the Appellate Division unanimously affirmed the order of the New York County Supreme Court dismissing the contractor’s claim for delay damages, citing the contractor’s failure to strictly comply with the notice of claim requirements set forth in the parties' contract.  Similarly, in Start Elevator, Inc. v. New York City Housing Authority the Appellate Division handed down a decision on May 9, 2013 unanimously affirming the New York County Supreme Court’s order dismissing the contractor’s claims for extra work due to its failure to strictly adhere to the relevant notice provisions contained in the contract.  Each of these cases are discussed below in further detail.

Schiavone Construction Co., Inc. v. The City of New York

In Schiavone the plaintiff contractor entered into a contract with the City for the construction of a new vertical lift span bridge over the Gowanus Canal in Brooklyn. During the course of the project, Schiavone encountered issues that caused delays in the completion of its work and that necessitated work not contemplated by the original terms of the contract.  In fact, the City issued a total of 1083 consecutive calendar days worth of extensions to the contractor.  The contractor originally filed a document entitled “verified notice of claim and bill of particulars” alleging delay damages in the sum of $1,732,850.90 and brought suit against the City of New York.  Later the contractor sought to amend its original notice of claim and complaint to seek damages in the increased sum of $5,711,701  based on its revised evaluation of its claim based on a “total cost” method of calculation.  The City then moved to dismiss the contractor’s claim for its failure to comply with the relevant notice of claim provisions set forth in the contract, and specifically Article 42 of the Contract which provided:

“[t]he contractor must submit a final verified statement of any and all alleged claims against the City, in any way arising out this contract… setting forth with respect to each such claim the total amount thereof, the various items of labor and materials included therein, and the alleged value of each such item; and of the alleged claim be one for delay, the alleged cause of each such delay, the period or period of time, giving the dates, when the contractor claims the performance of work, or a particular part thereof, was delayed, and an itemized statement and breakdown of the amount claimed for each such delay……  The contractor is warned that unless such claims are completely set forth as herein required, the Contractor upon acceptance of final payment,…. will have waived any such claim.”

In deciding the motion, the Supreme Court found that the contractor had “not yet submitted a final verified statement of its claim containing the specific details of the delays that Article 42 requires the final statement to include.”  In dismissing the contractor’s claim, the Supreme Court held “[t]his dispute is governed by the express terms of the Contract and, under the Contract, Schiavone has waived any claims it may have against the City.  Therefore, the pleadings fail to raise “any cause of action cognizable at law””.

On appeal the Appellate Division for the First Department unanimously affirmed the dismissal of the contractor’s claim holding that “Plaintiff’s original notice of claim failed to comply with the strict notice provisions of the parties’ contract; thus, plaintiffs waived their claim under the contract.”  The Appellate Division further pointed out that “no fewer than three clauses in the contract alert the parties to the importance of complying with all notice procedures; allowing plaintiffs to ignore those procedures would be to contravene long-standing black-letter law that a contract should not be read to “render any portion meaningless” and should be “so interpreted as to give effect to its general purpose”.

Start Elevator, Inc. v. New York City Housing Authority

In the Start Elevator action the plaintiff elevator contractor sought damages in the sum of $495,564.33 for change order work it allegedly performed for the New York City Housing Authority (“NYCHA”).  The defendant City of New York moved for an order dismissing the contractor’s claim on the grounds that Start Elevator “failed to file a written notice of claim with NYCHA within 20 days after its claim for extra charges arose, as required by Section 23 of the General Conditions of the Contract.”  (NYCHA  also claimed that the contractor released it from any claims.)

After the submission of papers and oral argument on the motion, the New York County Supreme Court found that the plaintiff contractor “failed to comply with the unambiguous terms of Section 23 of the parties’ Contract, which makes the filing of a notice of claim a “condition precedent to suit or recovery”” and accordingly dismissed the contractor’s claim.

Claiming reversible error, on appeal the contractor argued that two separate letters dated April 28 and May 4, 2004 constituted a notice of claim pursuant to section 23 of the parties’ contract.  However, the Appellate Division found this argument to be unavailing.  With respect to the April 28 letter, the Appellate Division pointed out that it merely stated the contractor would forward an estimate for the increased cost for the claimed extra work, whereas section 23 of the contract required the notice of claim to actually state the “amount of the extra cost”.  And although the contractor’s May 4 letter stated the amount of the extra cost for the alleged extra work, the Appellate Division found it significant that the letter was “not designated as a notice of claim”.   Based on the foregoing, the Appellate Division unanimously affirmed the dismissal of the contractor’s claim for payment for the alleged extra work.

These very recent decisions by the Appellate Division for the First Department should serve as a word of caution to contractors that they must strictly comply with all contractual notice provisions contained in their contract, regardless of how burdensome such provisions may be and irrespective of the “hard feelings” they are afraid will be created.  The contract should be thoroughly reviewed for all notice provisions and the exact requirements of each notice provision should be carefully examined and complied with in a timely manner.   And as the Start Elevator decision makes clear, the submission of any such notices should be expressly designated as a notice of claim as the Courts may not find ordinary correspondence to comply with the strict contractual requirements.  It is also advisable to state specifically the article or paragraph of the contract pursuant to which the notice of claim is being submitted.   Failure to adhere to such notice provisions can be very costly as demonstrated by the recent cases above and an experienced construction lawyer should be consulted to assure proper compliance.